CONNECT WITH LEARNSMART FOR BODIE: ESSE
11th Edition
ISBN: 2819440196222
Author: Bodie
Publisher: MCG
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Textbook Question
Chapter 7, Problem 7PS
Kaskin, Inc., stock has a beta of 1.2 and Quinn, Inc., stock has a beta of 0.6. Which of the following statements is most accurate? (LO 7-1)
a. The equilibrium expected
b. The stock of Kaskin has higher volatility than Quinn.
c. The stock of Quinn has more systematic risk than that of Kaskin.
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Which of the following statements is TRUE?
O A. If the risk-free rate is 1.5% and the market risk premium is 6%, then the expected return on the market would be 4.5%.
O B. CAPM is a model for relating unsystematic risk to the expected return on an asset.
OC. According to CAPM, stocks with greater than average market risk would have an expected return lower than the expected return on the market.
O D. If a company's beta is less than 1.0, then it is less risker than market.
a. Determine Stock X's beta coefficient.
b. Determine the arithmetic average rates of return for Stock X and the NYSE over the period given.
Calculate the standard deviations of returns for both Stock X and the NYSE.
c. Assume that the required return on equity, re, for Stock X is equal to its average return. Likewise,
assume that the market return is equal to the NYSE's average return. Using the information calculated,
what is the assumed risk-free rate in the CAPM equation?
Hint: Solve algebraically for rf in, re = r¡ + B(rm – r;)
Stock A is fairly priced by the market. Given that the risk free rate is 3.5%, the beta of stock A
is 1.2, the beta of stock B is 0.8, the expected return on A is 6.5% and on B is 5.5% which of
the following is correct given that betas of stocks A and B are correct?
a. Stock B is also fairly priced
b. The expected return on stock B is too high
c. The expected return on stock A is too high
d. The price of stock B is too high
e. The price of stock A is too high.
9) Which of the following would likely have the greatest amount of systematic risk?
a. A portfolio of the ordinary shares of 100 randomly selected companies
b. The market portfolio
c. A portfolio half invested in the market portfolio and half invested in treasury bills
d. A portfolio half invested in the market portfolio and half invested in stocks with betas
greater than 1.5
e. A portfolio made up entirely of treasury bills
Chapter 7 Solutions
CONNECT WITH LEARNSMART FOR BODIE: ESSE
Ch. 7 - Prob. 1PSCh. 7 - Consider the statement: “If we can identify a...Ch. 7 - Are the following true or false? Explain. (LO 7-5)...Ch. 7 - Here are data on two companies. The T-bill rate is...Ch. 7 - Characterize each company in the previous problem...Ch. 7 - What is the expected rate of return for a stock...Ch. 7 - Kaskin, Inc., stock has a beta of 1.2 and Quinn,...Ch. 7 - What must be the beta of a portfolio with E(rf)) =...Ch. 7 - The market price of a security is $40. Its...Ch. 7 - You arc a consultant to a large manufacturing...
Ch. 7 - Consider the following table, which gives a...Ch. 7 - Prob. 13PSCh. 7 - Prob. 14PSCh. 7 - If the simple CAPM is valid, which of the...Ch. 7 - Prob. 16PSCh. 7 - If the simple CAPM is valid, which of the...Ch. 7 - Prob. 18PSCh. 7 - Prob. 19PSCh. 7 - Prob. 20PSCh. 7 - In problem 2123 below, assume the risk-free rate...Ch. 7 - Prob. 22PSCh. 7 - In problem 2123 below, assume the risk-free rate...Ch. 7 - Two investment advisers are comparing performance....Ch. 7 - Suppose the yield on short-term government...Ch. 7 - Based on current dividend yields and expected...Ch. 7 - Consider the following data for a single index...Ch. 7 - Assume both portfolios A and B are well...Ch. 7 - Prob. 29PSCh. 7 - Prob. 30PSCh. 7 - Et
Ch. 7 - Suppose two factors are identified for the U.S....Ch. 7 - Suppose there are two independent economic...Ch. 7 - As a finance intern at Pork Products, Jennifer...Ch. 7 - Suppose the market can be described by the...Ch. 7 - Which of the following statements about the...Ch. 7 - Kay, a portfolio n1anacr at Collins Asset...Ch. 7 - Prob. 3CPCh. 7 - Jeffrey Bruner, CFA, uses the capital asset...Ch. 7 - Prob. 5CPCh. 7 - According to CAPM, the expected rate of a return...Ch. 7 - Prob. 7CPCh. 7 - Prob. 8CPCh. 7 - 9. Briefly explain whether investors should expect...Ch. 7 - Assume that both X and Y are well-diversified port...Ch. 7 - Prob. 11CPCh. 7 - 12. A zero-investment, well-diversified portfolio...Ch. 7 - 13. An investor takes as large a position as...Ch. 7 - In contrast to the capital asset pricing model,...Ch. 7 - Prob. 1WMCh. 7 - Prob. 2WMCh. 7 - Prob. 3WMCh. 7 - a. Which of the stocks would you classify as...
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